Safekeeping Property · 2-8% of the exam
20.3.1Third-person funds: scope of the rule (Rule 1.15)
On this page
- Rule 1.15 — Scope of third-person coverage
Why
Settlement proceeds include lienholder shares; adverse-party payments flow through counsel; prior attorneys hold fee interests. Money passing through a lawyer's hands in a matter is routinely owed to someone other than the client, and a safekeeping duty that stopped at the client would leave those people with nothing to rely on.
Plain English
The nexus to a representation, not the identity of who owns the funds, triggers Rule 1.15. Property of a prospective client counts: Comment [1] reaches all property of clients or third persons, including prospective clients, so money handed over by a person who is still deciding whether to retain you is trust property even if no representation follows. Funds held as a personal favor outside any client relationship are not governed by the rule.
The same duties — separate account, identification, prompt notification, prompt delivery, accounting on request, and complete records of the funds and other property, preserved after the representation terminates for the period the jurisdiction sets — the Model Rule suggests five years; each state sets its own period — reach funds received from third persons in connection with a representation.
Rule
Rule 1.15 — Scope of third-person coverage
The same safekeeping duties (separate account, identification, prompt notification, prompt delivery, accounting on request, and complete records of the funds and other property, preserved after the representation terminates for the period the jurisdiction sets — the Model Rule suggests five years; each state sets its own period) apply to funds or property received from third persons in connection with a representation, not just from the client.
- Prospective clients (Comment [1])
All property that is the property of clients or third persons, including prospective clients, must be kept separate from the lawyer's business and personal property — a deposit taken from a person who does not go on to retain the lawyer is still trust property.
- Covered examples
settlement funds held for distribution; lien amounts withheld pending resolution; co-defendant contributions held by lead counsel; adverse-party payments remitted through the lawyer.
- Scope limitation
Funds received outside any representation or prospective-client consultation (a referral payment unrelated to any client matter, a personal loan, or a casual escrow favor) are not governed by Rule 1.15, even if the holder is a lawyer.
A lawyer may place non-representation-related third-party funds into a business account without violating Rule 1.15.
Example 1
Ex. 1
A lawyer's neighbor is selling land in a private transaction with no attorneys involved. The neighbor asks the lawyer to hold $25,000 in escrow as a personal favor during the closing period. No attorney-client relationship exists and the lawyer has no client in the deal. The lawyer deposits the $25,000 in the firm's operating account.
No Rule 1.15 violation has occurred. The safekeeping obligations attach only to funds received in connection with a representation, a prospective client's consultation included. This arrangement has no representation nexus. The fact that the holder is a lawyer doesn't extend the rule to personal transactions. She is not outside everything, though: Comment [5] says a lawyer who serves only as an escrow agent is governed by the applicable law relating to fiduciaries, even though she renders no legal services in the transaction and this Rule does not reach her. Hunt for the client in the neighbor's escrow; there isn't one.
Trap
Tip
Questions · 1
Q 01ch20-e08
Question 1 of 1 · Rule 1.15
Attorney practices employment law in a two-person firm. A longtime Friend, who has never been Attorney's client and has never consulted Attorney about any legal matter, agreed to sell a vintage tractor to a private Buyer. The two wanted someone neutral to hold the Buyer's twelve thousand dollars while the title paperwork was completed, and the Friend asked Attorney to do it as a favor. No lawyer acted for either side in the sale, and Attorney gave no advice about any part of it. Attorney agreed, deposited the twelve thousand dollars into the firm operating account, and paid it over to the Friend once the title transferred. Is Attorney subject to discipline?
Keys 1 to 4 choose.